AN Urdu language newspaper held a “pre-budget” seminar at Lahore on April 30, 2007. I was one of the 10 or so speakers. Others included Sartaj Aziz, Dr Mubashir Hasan, Tariq Saigol and a number of representatives of some business and industrial organisations. The government was represented by Drs Salman Shah and Ashfaq Khan.

The government was happy with the progress made by the economy under the military’s rule; it was particularly pleased with the performance of the economy since the year 2002-03 when the country broke loose from the IMF imposed constraints.

For the last six years, the economy has been expanding at an impressive pace. But this description, accurate in many respects, did not seem to produce a cheer among the fairly large audience. One thing was abundantly clear from what was said at this well attended seminar. There was a wide gap between the government’s perceptions and those of the people from civil society and the business community. Why?

In order to answer the question I will take a break from the series of articles I began on the provinces and economic development two weeks ago to reflect on some of the points made at the seminar. I will return to the provincial series next week. I will mostly expand on the points I made but it would be interesting to begin with a summary of the statement by Dr Mubashir Hasan, minister of finance in the early 1970s, and associated with the dramatic restructuring of the economy done under the watch of Prime Minister Zulfikar Ali Bhutto.

Dr Mubashir Hasan used the parable of an animal farm to highlight what he saw as the government’s view of the economic situation and people’s reaction to what was happening to them. He said that the people of the country were like so many cattle tethered to their posts in a cattle farm. The farm manager and the farm owner were pleased with what they were doing.

They used the best animal husbandry practices known to mankind. The cattle continued to provide milk in increasing amounts; they produced their offspring on a regular basis; some of the offspring went to the slaughter house and some, when fully grown, came to the cattle pen to produce more milk.

The owner and the manager grew rich and all seemed well with the farmland. It seemed well when viewed from the perspective of the owner and the manager.

But what about the animals’ perspective? Dr Mubashir believed that that too was worth at least a passing thought. The animals spent their entire lives in the cattle pen; they provided milk when they were milked; they ate when the fodder was placed before them; they yielded offspring when they were crossed with the males kept separately for that purpose; their children were separated from them the moment they were born; their own milk was not served to them; instead, it went to the kitchens of the affluent in some distant place.

When they were not capable of producing milk they were slaughtered and appeared as meat on someone’s table. The cattle were clearly serving the owner and the manager but what was in for them?

It was clear that the former finance minister — the architect of Bhutto’s nationalisations and the expansion in the power of the state — was on the side of the cattle. Exactly how he would use the parable to recommend some changes in public policy was not clear. It was obvious that he wanted more to be given to those who were labouring hard to produce for those who were getting a great deal from the way the economy was being made to perform. At this point, I should go into my own presentation.

I started by asking a simple question: why the preparation and announcement of the budget continued to be such defining moments in the economic life of the country to warrant the convening of such seminars and workshops in their anticipation. In fact, some other newspapers had also organised similar events in the city and I expect that the same must be occurring in Karachi, Islamabad and other major cities of the country.

This attention to the budget made sense when the government was the predominant player in the economy and when its fiscal policies — in particular the changes announced in the budget — were the main instruments of public policy concerning the direction to be given to the economy. But this was no longer the case.

When the role of the government had been reduced considerably and that of the private sector had increased significantly, the importance of the budget as an instrument of public policy must have been reduced. In an economy led by private enterprise, the budget should be less of an event than, say, the changes in the regulatory policies of a major regulating agency or the formulation of trade policy.

In fact, I would suggest that the non-government players in the economy are giving the wrong signal to the government by focusing so much attention on the budget. The pressure on the government’s economic managers should be to undertake economic policymaking every day of the year. It should be a 365 day affair, not a one day event when some fiscal changes are sprung on the people by way of budgetary proposals. In a well run fiscal system, the managers of the economy needed to make only marginal changes in the tax policy. Those changes don’t deserve the media attention the budget usually receives.

I then spoke about the state of the economy and in that context I made two points. I questioned the sagacity behind the repeated comments by the senior leaders claiming that the economy had doubled in size in the six year period since 2001 implying that it had grown by 12 per cent a year. It was again repeated at the Lahore seminar by the senior officials that the GDP had increased from $70 billion to $140 billion in half a dozen years.This rate of increase would be plausible only if it was in nominal terms and factored in also the large (20 per cent or so) increase produced by the rebasing of the national income accounts to 2000-01.

In other words, a 12 per cent rate of increase was partly the result of inflation and partly the consequence of the accounting change in the estimation of national income accounts. No serious economic analyst uses nominal increases in GDP or GNP as a measure of the growth of the economy. If the rate of inflation jumped, say, to 100 per cent a year would the economic managers celebrate the fact that the size of the economy had more than doubled in one year?

To be fair to the government it uses dollar estimates of the GDP and GDP per capita to make claims about the doubling of the GDP over a six-year period and the anticipated crossing of the $1000 mark in a year or so in terms of income per head of the population. This still does not use real dollars to do the accounting. It runs into another serious problem. It does not factor in the gradually appreciating exchange rate that, for some inexplicable reason, has become an important part of the state’s economic policy.

If, at some stage, the government decides that it can no longer afford to maintain an overvalued exchange rate and devalues the rupee by, say, 15 per cent to Rs70 to the American dollar would it say that the size of the economy had contracted? Would it be prepared to say that the Pakistani GDP in that particular year had declined by eight to 10 per cent or that the medium-term growth performance, upon reflection, was not 12 per cent a year as is the current claim but considerably lower than that?

I am rather puzzled by the continuous use of these inaccurate measures of performance when the use of accurate measures would still indicate a healthy performance, much better than the average for the decade before the advent of the Musharraf era. It never helps to exaggerate achievements by using measures that have little economic logic. Such an approach only hurts the government’s credibility.

There was no doubt that the economy had grown rapidly, perhaps by 6.5 per cent per annum over the last six years. This was a perfectly respectable rate of growth. If it could be maintained over the next several years, there is no doubt that it would change the structure of the economy and make a large number of people rich, even very rich. But the question was whether it would help the poorer segments of the population and improve the distribution of income.

Before dealing with the issue of the impact of recent growth in the size of the economy on poverty and equality, it would be useful to say a word about the sustainability of the current impressive performance. This has been a hotly debated issue in the country now for a couple of years.

The government’s economists maintain that the reforms they have undertaken have put the country on the trajectory of growth that would ensure significant expansion of gross domestic product for many years to come.

There are a number of independent economists who counter this argument with the claim that the current expansion is a combination of two circumstances: a very large increase in external capital flows and monetary and fiscal expansions undertaken by the government in association with the State Bank of Pakistan, the country’s central bank.

In both cases — even in either case — an expansion based on these driving factors would run into pronounced difficulties if sustained over a long period of time. History has plenty of evidence to show that economic expansion based on external flows cannot be sustained. And, expansion produced by monetary and fiscal relaxation produces inflation. Growth has to come from domestic savings and investment.

That said I don’t agree with those critics of the government who suggest that the pick up in the growth of the economy was the consequence of the windfall foreign incomes produced by 9/11.

There is no doubt that there was a sharp increase in the amount of US assistance flowing to Pakistan after the terrorists struck America almost six years ago. There is also no doubt that the stiff restrictions placed on hawala transactions by the United States and other western nations diverted significant amounts of remittances into the banking channels and thus helped the balance of payments situation. They also brought an enormous amount of liquidity into the banking system which in turn fuelled consumption rather than investment. This is a point to which I will return later.

(To be concluded)

“Respected people of Helmand,” the radio message began. “The soldiers of the International Security Assistance Force and the Afghan National Army do not destroy poppy fields.

They know that many people of Afghanistan have no choice but to grow poppy. ISAF and the ANA do not want to stop people from earning their livelihoods.” It was such a sensible message that it almost had to be a mistake, and of course it was.

The message, written by an ISAF officer and broadcast in Helmand province last week on two local radio stations, was immediately condemned by Afghan and American officials from President Hamid Karzai to down. So does that mean that ISAF really is going to destroy the farmers’ poppy fields?

Well, not exactly. The latest plan is that it will be civilians who spray the farmers’ fields with herbicides, while the western soldiers just stop the farmers from retaliating. That should win lots of hearts and minds in Helmand and other opium-producing provinces of Afghanistan where the former Taliban regime is making an armed come-back attempt.

The soldiers of ISAF do not want to be seen as destroyers of the poppy crop because that would get lots of them killed (for the farmers can turn into Taliban fighters overnight). It was allegedly a Territorial Army (reserve) officer newly arrived from Britain who “got a bit carried away with the language” and sent the offending message to local radio stations in Helmand, but most other army officers in Afghanistan, whatever their nationality, privately agree with him. You cannot fight a war against the Taliban and a “war on drugs” successfully at the same time.

That was clearly understood at the time of the invasion in 2001. The Taliban, austere Islamist fanatics that they were, had eradicated poppy-growing entirely by 2000, by the simple expedient of hanging anybody they caught growing poppies. The Taliban begged for western aid for the distressed farmers, who were only earning a quarter as much from growing grain and vegetables, but Mullah Amir Mohammed Haqqani was adamant: “Whether we get assistance or not, poppy growing will never be allowed again in our country.”

Then the Taliban’s house-guests, Osama bin Laden and his Al Qaeda friends, carried out the 9/11 attacks against the United States. Bin Laden probably didn’t mention this to the Taliban in advance, because Afghanistan was bound to get invaded as a result. In fact, he almost certainly wanted the United States to invade Afghanistan, imagining that it would result in a long guerilla war and ultimate humiliation for the United States, just as it had done for the Soviet Union in the 1980s.

The United States dodged that bullet by not really invading Afghanistan at all. It simply contacted the various ethnic warlords who were already at war with the Taliban regime, gave them better weapons and lots of money, and left the fighting on the ground to them. It worked very well, and there was no guerilla war.

However, the United States now depended on those warlords to keep Afghanistan quiet without flooding it with American troops (who were all heading for Iraq anyway). The warlords needed cash flow, which meant poppies: opium and refined heroin account for over one-third of Afghanistan’s gross domestic product (GDP) and almost all of its exports. So the US turned a blind eye in 2002 while its warlord allies encouraged farmers to replant the poppies, and didn’t object when they were “elected” to parliament and joined Karzai’s cabinet either.

Opium production soared last year to 6,400 tonnes, and Afghanistan now produces 92 per cent of the world’s heroin. The “war on drugs” lobby in the United States insists that something be done about it, so the US and allied armies end up trying to destroy the farmers’ crops. The Taliban swallow their anti-drug principles and promise to protect the farmers. Guess who wins the war.“We cannot fail in this mission,” said John Waters, head of the White House’s Office of National Drug Control Policy, last December, as if wishing would make it so. But if he would like to succeed in Afghanistan, he might just try buying the crop up.

Afghan farmers get paid considerably less than $100 a kilo for their raw opium. Multiply 6,400 tonnes by $200 a kilo, to outbid the drug smugglers, and ISAF could have bought up last year’s entire Afghan crop for $2.5 billion. What’s more, the money would be going straight into the pockets of the people whose “hearts and minds” are at stake: the 13 percent of Afghans who are involved in the opium trade.

Next year, of course, Afghan farmers would plant twice as many poppies, so the costs of the operation would rise over time. And nothing will stop the flow of heroin to the West: even if poppy production were entirely suppressed in Afghanistan, it would simply move somewhere else, like the Golden Triangle in South-East Asia. But buying up the opium crop is about the only thing that would give ISAF a chance of winning its increasingly nasty little war. –– Copyright

WHEN Gen Musharraf forced Nawaz Sharif and Benazir Bhutto into exile, he created a political vacuum which the MMA, political opportunists and the MQM filled. Out of these, apart from some elements, only the MQM appeared to be a party that did not appeal to religious sentiments to seek power. In short, parties appealing to religion or supporting the military (or both) gained ground. In the long run, this is harmful for Pakistan’s political ethos.

In between a number of events occurred which tested the political power of the religious political groups. After 9/11, General Musharraf very wisely pulled back from covert militant operations in Kashmir. The religious elements were incensed and tried to assassinate him.

However, they could not bring the people on to the street — not even their own kind — in impressive numbers to force him to reverse this decision.

Not so wisely, the military government helped the US to wage an unjust war in Afghanistan. There were demonstrations in reaction but the people did not support them. Then came the Women’s Protection Bill where the MMA had to climb down from its threat to resign en masse from the legislature.

Where the on-going judicial crisis is concerned, despite the fact that the leaders of the MMA are prominent, the real resistance is by the lawyers and the silent majority supports it by remaining glued to their TV channels. Indeed, the electronic channels — which the religious lobby attacks frequently — is the one which has defiantly covered all aspects of the crisis. Aaj, the channel on which journalist Talat Hussain has his show, is supported by all kinds of people, including religious ones, in its brave attempt to resist Pemra’s pressure to throttle it.

In short, while the religious lobby has increased in street power (as evidenced by the Jamia Hafsa incident) over the last two decades, it is not yet strong enough to have voter appeal all over the country. The same street power has turned into some kind of warlord rule — with the warlords being different groups of the local Taliban — in parts of the NWFP.

This, however, is lack of good governance and not the people’s support of Talibanisation. People turn to the local mosque, or the Taliban warlord, in Fata or elsewhere when they seek justice as the courts are both corrupt and slow. They get rough and ready justice but at the cost of obeying what their benefactor calls the Sharia.

This being so, is it possible for liberal and moderate parties to create a coalition in order to defeat the rightist forces in the upcoming elections? The press of May 4 seems to suggest there is. There is report citing the MQM that it would welcome the PPP “on board”. This has come in the wake of news that the PPP is on the verge of striking a deal with General Musharraf.

Presumably the PPP will support him as president in addition to being the army chief while the military will drop all cases against Benazir Bhutto. This version of the ‘deal’ is denied both by the government and the PPP. Several top-ranking PPP leaders spoke to the press explicitly denying any “unconstitutional” deal (i.e. the army chief being president). However, Benazir Bhutto herself was less forthright in her denials.

The other non-religious forces are the Awami National Party (ANP) and the Pakistan Oppressed Nations Movement (PONM). They appeal to ethnic politics and it is not immediately obvious how the military-backed government, ever averse to this kind of politics, will accommodate them.

Indeed, the Punjabi urban opinion, as well as Punjabi politicians and intellectuals, are so suspicious of them that any understanding with them can only be fragile and temporary. This leaves us with the PPP and a few independents to sway the votes in the Punjab and to have the numbers and the moral authority to make liberal policies ascendant in the country.

Unfortunately, Benazir Bhutto has not spelled out her future policies. We do not know if she will continue the peace process with India. We are not told whether she will show flexibility on Kashmir which General Musharraf did. What will she do about the war on terror? Will she introduce textbooks which do not glorify war or contain India-bashing material? Will she strike down laws which make it possible to oppress minorities or others in the name of Islam? Will she strengthen women? If so, how? Will she actually reduce the power of the military? If so, in politics? Or business? Or education? Or jobs? Or foreign policy? Or the Kashmir policy? Or the nuclear policy? Or all? And how?

The worse scenario for Benazir Bhutto personally and liberal politics is that the PPP should come to power after an unconstitutional deal with the military. In such a deal, the PPP would have to accept the unprincipled stance that an army chief can be the president of the country at the same time. Also, if the PPP has to distance itself from supporting Chief Justice Iftikhar Chaudhry, irrespective of the legal verdict in the case, it will lose votes.

Suppose, then, that the PPP comes into power through a secret understanding that the prime minister will leave foreign policy, nuclear policy, Kashmir policy and the army’s business and other interests to the military or its representatives.

This will mean a situation like that of 1989 when Benazir Bhutto came into power for the first time.

At that time, however, it was known to all serious observers of politics that she was not allowed to exercise power in any meaningful way. When she was removed through a palace coup, democrats sympathised with her.

This time, however, if she accepts such conditions she will commit political suicide. Nobody will sympathise with her as she would appear unprincipled. The other PPP leaders would not be able to control the damage. Indeed, the longer she stays as the puppet prime minister — which is what she will be with a uniformed president at the

helm — the more she will be blamed for whatever goes wrong and never praised for things which go right.

That will be tragic for Benazir Bhutto herself and, more importantly, for liberal politics in the country.

The solution, however, is in Benazir Bhutto’s hands. She should take the voters into confidence as to the specific policies she will implement. And, what is more, these should be sincerely meant and actually implemented if she comes to power. If General Musharraf wins the presidential election as a civilian president within the ambit of the Constitution, she should welcome him.

However, she should strike no underhand deals with opportunists, intelligence agencies or military commanders. If she cannot come into power without these, so be it. She will serve the liberal cause better as a symbol of political integrity from the opposition benches.

Under these transparent conditions she should take all the ethnic parties, including the MQM, the PONM and the ANP, into confidence. However, if power passes to them in the provinces, she should be ready to be tolerant and magnanimous.

Her father’s policy of alienating his rivals in Balochistan and the NWFP in 1973 was wrong and should be shunned. If the MMA wins, then it too should be welcomed like any other political party. Liberal politics allows diversity and suppresses no point of view provided it is not expressed by force.

Above all, both before the election and after it; whether she wins or loses, the PPP should be so principled and reasonable that it should convert the fence-sitters in its favour. The PPP was a party of mass appeal in 1970 but it also had street roughs in it. Moreover, Bhutto was charismatic but also tyrannical in his ways.

That is why the PPP alienated a large section of the middle class including the officer corps of the armed forces.

This legacy has got to be rid of now with great effort. The PPP should become a party which stands for the poor, for women, for democratic values and has no roughs in it. This new PPP will be a liberal force to reckon with and, even if it does not win the coming election, it will remain the only viable alternative to Talibanisation in Pakistan.